Commodity is simply a collection of raw materials for production or manufacture of other goods.
Types Of Commodity
Soft commodity: Agri-products such as rubber, cocoa, maize, sorghum, wheat, sesame seed, groundnuts gum Arabic, cashew nuts, coffee, cotton and so on.
Hard commodity: this includes natural gas, bauxite, gold, coal, iron ore, diamonds, zinc, lead, niobium (columbines), tin, limestone, tantalite, crude, etc.
Livestock: this includes pork, cattle (live and feeder), chicken, etc.
Risks Involved In Trading Commodity
- Price variation
- Inflation
- Quality risk
- Logistics (transportation, time, storage)
- Pest
- Political instability
- Economic (work force)
- social, technical counter party; (demand and supply, glut and shortage)
- Price (variation, hedging, policy, rules, trading platform).
Challenges Faced By Commodity Traders
- Existence of produce/raw materials
- Quality of produce/ raw materials
- Quantity of produce/raw materials
- Tradability; this guarantees the hedge of the commodity price (forward, future) lock down.
Structured Trading
This involves:
- Farmers
- Miners
- Merchants
- Exporters
- Trading floor (exchange)
- Assayers(inspectors)
- Warehouses/silos
- Depository
- Settlement bank
- Brokers
- End user